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Saturday, March 19, 2016 7:24:30 AM
Finding Nemo
Or, in this case, NYMO...The New York Stock Exchange McLellan Oscillator. I used to watch this thing in the past quite a bit to help determine overbought or oversold market conditions.
The basic premise is simple...when the oscillator reaches +100, markets have reached an overbought saturation point. When it reaches -100, markets have reached an oversold saturation point.
In real time, what actually happens is that when the oscillator reaches either of the 100 marks, it will begin moving back the other direction as the market continues in it's current trend up or down. But after a pullback to the moving average cluster, which is always in the middle, it will then begin moving back toward whatever peak it came from, plus or minus. That's when the markets form tops or bottoms.
The times when the oscillator is more or less stuck in between the ranges is when volatility is low and the market is pretty much stuck in a particular trend up or down.
But when volatility spikes, the oscillator goes nuts and starts swinging back and forth between the +100 and -100 levels.
So, in this case, the oscillator actually peaked right after the beginning of March. In other words, that was the REAL market high based on levels of buying. When the oscillator began dropping, that's when the big money started selling positions. But the actual market price always lags behind the oscillator and follows through later.
What we have now is a simple bearish head and shoulders with a neckline breakdown and now a final retest. This move back towards the top after the +100 level has already been hit is the ideal condition for a market sell off to begin.
Look back over the NYMO chart and then pull up the S&P charts. You'll see how the markets react after the +100 or -100 levels are reached, move away, and then come back later to retest. Basically, the higher highs now in the market vs. the lower highs on the NYMO set up the negative divergence we like to see before market drops.
Just more info to add to your toolbox.
Or, in this case, NYMO...The New York Stock Exchange McLellan Oscillator. I used to watch this thing in the past quite a bit to help determine overbought or oversold market conditions.
The basic premise is simple...when the oscillator reaches +100, markets have reached an overbought saturation point. When it reaches -100, markets have reached an oversold saturation point.
In real time, what actually happens is that when the oscillator reaches either of the 100 marks, it will begin moving back the other direction as the market continues in it's current trend up or down. But after a pullback to the moving average cluster, which is always in the middle, it will then begin moving back toward whatever peak it came from, plus or minus. That's when the markets form tops or bottoms.
The times when the oscillator is more or less stuck in between the ranges is when volatility is low and the market is pretty much stuck in a particular trend up or down.
But when volatility spikes, the oscillator goes nuts and starts swinging back and forth between the +100 and -100 levels.
So, in this case, the oscillator actually peaked right after the beginning of March. In other words, that was the REAL market high based on levels of buying. When the oscillator began dropping, that's when the big money started selling positions. But the actual market price always lags behind the oscillator and follows through later.
What we have now is a simple bearish head and shoulders with a neckline breakdown and now a final retest. This move back towards the top after the +100 level has already been hit is the ideal condition for a market sell off to begin.
Look back over the NYMO chart and then pull up the S&P charts. You'll see how the markets react after the +100 or -100 levels are reached, move away, and then come back later to retest. Basically, the higher highs now in the market vs. the lower highs on the NYMO set up the negative divergence we like to see before market drops.
Just more info to add to your toolbox.
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